August 03, 2010 --An East Coast hotel investor in line to buy
the troubled Grand Hotel Minneapolis for $36 million may be backing out
of the deal.

Pebblebrook Hotel Trust agreed in May to purchase the
downtown Minneapolis luxury hotel, whose guests have included
celebrities such as Janet Jackson and Bon Jovi. However, according to a
recent government filing, the deal might not close.

Pebblebrook said in the filing that "based on our due
diligence activities to date, there is significant uncertainty as to
whether this acquisition will be consummated."

The comments are contained in a July 22 prospectus
Pebblebrook filed with the Securities and Exchange Commission to offer
17 million shares of stock. Pebblebrook said that it had extended its
due diligence on the Minneapolis hotel an additional 30 days to July
30.

The extra time would allow it to review "significant and
unanticipated matters that we became aware of during our due diligence
process," it said.

According to the prospectus, the Grand Hotel Minneapolis had
revenue of $2 million for the quarter ended March 31, with an occupancy
rate of 54 percent.

The hotel, at 615 2nd Av. S., was once the home of the
Minneapolis Athletic Club. Local developer Jeffrey Wirth, head of
Minneapolis-based Wirth Cos. Inc., opened the hotel in 2000 after a
significant renovation.

He put the hotel on the market in December. Wirth's lender,
iStar Financial Inc., a REIT in New York, confirmed Monday that it took
title to the property via a deed in lieu of foreclosure. It said it
couldn't discuss the matter.

Wirth's two waterparks in the Twin Cities have recently sold.
The Ramada Minneapolis Northwest & Grand Rios Indoor Water Park in
Brooklyn Park recently sold to a local hospitality company. In April,
Wheelock Street Capital, a real estate private equity firm in
Greenwich, Conn., bought Wirth's Radisson Hotel and Water Park of
America in Bloomington for an undisclosed sum.

Wirth's Central Medical Building in St. Paul is also on the
market.

Wirth said in an interview Monday that he is under various
confidentiality agreements and can't address any of the sales. But he
said his company is not in liquidation mode and "will not be selling
any more properties in the foreseeable future."

Wirth said that he would continue to maintain a "significant
financial position" in Grand Rios and that Wirth Cos. was moving
forward with other projects in the Upper Midwest.

A local hotel broker said that Pebblebrook's disclosures
about the Grand Hotel Minneapolis were somewhat unusual, but that there
could be technical reasons for it.

"It could be just that they're hypervigilant and very, very
cautious," said Ted Leines, principal of Leines Hotel Advisors in Eden
Prairie. "It's a little bit unusual."

Jennifer Bjorhus --612-673-4683

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